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Vanguard says the outlook for the 60/40 model of stocks and bonds looks better, but here's the allocation it prefers most

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It’s still jaw-dropping to look at the 2022 asset performance chart. The dot for 2022 is way to the left – i.e., signaling a year where stocks and bonds plummeted in value.

Vanguard analysts say not to worry – they still think 2022 was just an aberration. “This breakdown in correlation was disconcerting to many investors and led some to question whether the 60% stock/40% bond portfolio still had merit as an investment tool,” says Roger Aliaga-Diaz, head of portfolio construction. “Our research concludes that correlations can move aggressively over shorter investment horizons, but it would take long periods of consistently high inflation for long-term correlation measures – those that most significantly affect portfolio outcomes – to turn positive. .”

And even hawks like Minneapolis Fed President Neel Kashkari say there are tentative signs that inflation has peaked. Data from Italy on Thursday morning reinforced that view.

According to Vanguard, the precipitous fall in asset prices over the past year has raised expectations for performance over the next decade, “because developed market sovereign debt yields are the foundation upon which other risky returns are built,” he says. . The balanced portfolio, he says, still offers the best chance of success.


As the graph shows, however, its asset allocation model is more biased towards bonds and emerging markets than a conventional 60/40 model. It’s a 50-50 model between equities and fixed income, including 10% for emerging market equities.

The market

US stock futures ES00,

fell after an unexpectedly strong ADP private sector jobs estimate. The 2-year Treasury yield TMUMUSD02Y,
rose 10 basis points to 4.45%.

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the buzz

ADP estimated that 235,000 private sector jobs were created in December, as the Labor Department reported a big drop of 19,000 in weekly jobless claims to 204,000.

The president of the Fed of St. Louis, James Bullard, is due to deliver a speech at 1:10 pm Eastern after the Federal Reserve’s tough minutes were released on Wednesday.

said its layoffs will total more than 18,000 employees, mostly in its corporate ranks, in retail and recruiting in particular.

Silvergate Capital SI,
shares fell 40% as the crypto-focused bank said total digital asset customer deposits had dropped to $3.8 billion at the end of the year from $11.9 billion and that it was reducing 40% of its workforce. Another cryptocurrency-focused bank, Signature Bank, also dropped in premarket trading.

Exxon Mobil XOM,
on Wednesday night gave an update on fourth-quarter performance, which analysts at RBC Capital Markets say implies earnings per share modestly below consensus expectations.

Tesla TSLA,
saw its Chinese deliveries drop 21% year-on-year in December.

Western Digital WDC,
shares surged in premarket trade after Bloomberg reported it has restarted merger talks with Kioxia Holdings.

The Consumer Electronics show officially starts on Thursday.

The House of Representatives is back in action at noon Eastern after six rounds of voting that so far have not seen Representative Kevin McCarthy become President.

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the chart

It’s darkest before dawn and so is the stock markets. Analysts at Goldman Sachs point out that equity markets tend to rebound near the peak of interest rates — but often dip in the final rate hikes. “Further weakness in the US labor market – or higher energy prices in Europe – could lead to momentum data being weaker in the first half of 2023. recovery,” they say. .

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